DAVOS, Switzerland (MNI) – The European sovereign debt crisis is
more than a Eurozone problem and nobody can be sure of not being
affected by it, International Monetary Fund Managing Director Christine
Lagarde said Saturday.

Speaking on a panel at the Annual Meeting of the World Economic
Forum, Lagarde said, “No one is immune in the current situation. It’s
not just a Eurozone crisis, it’s a crisis that could have spillover
effects around the world. No country is immune and everyone has an
interest in making sure that this crisis is resolved adequately.”

The IMF believes that greater economic growth, “a decent firewall,”
and more integration are needed to solve the crisis, she said.

“Growth will be critical for many reasons, including to mitigate
the deleterious impact on employment of needed deficit cuts, the IMF
chief said. Since growth requires sufficient liquidity, “what [European
Central Bank President Mario] Draghi has done recently is critical,” she
said in reference to the ECB’s long-term liquidity-providing efforts.

Lagarde called for a firewall “that can operate both to limit the
contagion” and to restore trust among European banks so that financing
needs in the region “can be met if others are not interested” in meeting
them.

Fiscal consolidation, she made clear, should not be applied blindly
“across the board without considering specific circumstances.” She urged
caution in approaching consolidation “with one-size-fits-all messages.”
Rather, “it has to be tailor-made, customized to the specificities of
the country.”

In this regard, Lagarde said, countries fall into one of three
categories.

Some are in “such bad shape” that they must urgently consolidate
and hope to “bounce back from a hard prescription,” she said.

Others, such as the U.K., “should let automatic stabilizers play
out,” while the “handful” constituting the third category — those “that
have the fiscal space to actually slow down their fiscal consolidation
path without violating their domestic rules” — “should certainly
explore what they can do to boost growth,” she said.

Asked why relatively poor countries that are well managed and have
large reserves should contribute generously to the IMF for the sake of
Europe, Lagarde reiterated her assertion that “no one is immune” to the
crisis.

If a firewall is “big enough, it will not get used, and the same
applies to the Eurozone firewall for that matter,” she said.

Furthermore, Lagarde continued, “it’s a very safe investment” as
the IMF is always paid back. “We never lend without a program, without
conditionality” and “a very serious follow-through,” she said.

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

[TOPICS: MGX$$$,MT$$$$,M$$EC,M$X$$$,M$$CR$]